Why be a mere spoke of a future China hub?

By Peter C.Y. Chow 周鉅原

The proliferation of regional trading arrangements in East Asia offers challenges and opportunities for several countries in the region, including Taiwan.

Because of different levels of development, asymmetrical GDP size and divergent economic structures in East Asia, the emergence of trading blocs — be they ASEAN plus China or ASEAN plus China, Japan and South Korea — would generate a domino effect in favor of the largest countries.

As Nobel laureate Paul Krugman predicted, a free-trade area between large and small economies results in all factors of production, except land, transferring to the larger country, and thus the “hub and spoke” scenario.

Richard Baldwin has argued that a bicycle model of East Asian integration “with two natural hubs and many overlapping spokes” will emerge in the region. Essentially, there would be a Japan-centric versus China-centric hub, surrounded by many spokes across the region.

One can locate the divergence between the hubs: The Japan-centric hub would be driven by market forces through trade, investment and technology flow, whereas the China-centric hub would be largely motivated by foreign policy. Also, the Japan-centric hub is dominated by the nation’s industrial democracy — a leader of East Asian industrialization and well endowed with “oceanic civilization.”

On the other hand, China has been and still is an authoritarian regime, and is traditionally tied with “continental civilization.” The China-centric hub is, in addition to its political leverage over Hong Kong and Macau, manipulated by Beijing’s “good neighborhood” policy relating to Southeast Asian countries, as well as its overtures toward Taiwan.

From a global perspective, the China-centric hub would be technologically inferior to the Japan-centric hub. Unlike Japanese investments overseas, China’s outward foreign direct investment aims to exploit natural resources and obtain strategic supplies with little or no possibility of technology transfer to host countries. Moreover, China remains an emerging market economy at an earlier stage of development and industrialization relative to Japan.

What are the options for Taiwan? Since the Dutch arrived in the 17th century, Taiwan has belonged to an oceanic civilization. In its postwar development, Taiwan has been following the Japanese trajectory since its economy took off in the 1960s. By the measures of economic development and degree of industrialization, Taiwan is more similar to Japan than to China.

Therefore, if Taiwan signs an economic cooperation framework agreement (ECFA) with China without also signing individual free-trade agreements with the US, Japan and other ASEAN countries, then it will become one of the many spokes (or peripheries) of the China-centric hub. By integrating itself with a Greater China Economic Zone, Taiwan would become vulnerable to a clash between the oceanic and continental cavitations, as Samuel Huntington’s thesis dictates.

As long as unification is Beijing’s goal, economics cannot be separated from politics. Once Taiwan signs an ECFA with China, it will become part of Greater China economically — and eventually join China’s orbit politically.

Those who proclaim that trade pacts do not affect sovereignty are either naive or putting their heads in the sand. While Hong Kong has had no choice but to sign its trade pact with China, Taiwan still has autonomy — and vital alternatives in the process of globalization.